Forex spread trading

Trading spread is a departure from the classic methods of trading on Forex. This way of working makes it possible to receive a constant income regardless of market conditions.

Spread is the difference between the prices of two baskets of financial instruments. Strange as it may sound, but trading a spread on forex can mean buying a basket of platinum and simultaneously selling a basket of silver, or soybeans and products from them (eg soybean oil and soy flour), or buying oil and selling petroleum products.

The most important thing in spreading trade, as the well-known trader with experience in the US stock exchanges, correctly select a pair of tools that will make up the spread. It is important that the difference between their prices most of the time changes in a certain period. Therefore, they try to select instruments with high correlation and similar characteristics, for example, securities of one company from different stock exchanges, or futures on different execution dates, or securities of companies / enterprises from one industry.

The prevalence and certain popularity of the Forex spread trading has already led to the formation of stable spreads:

Variations of spread trade are paired trading (spread between two instruments with high correlation) and arbitrage trading (spread between related or identical instruments, with almost no market risk). Arbitrage trade is divided into:

Spatial arbitration (one instrument traded in different markets is traded)

Calendar arbitration (futures with different delivery dates)

Equivalent arbitrage (they trade linked instruments, for which the price of one is linearly dependent on the price of the other, for example, the share is a depositary receipt)

If the spread is built correctly, then it becomes more profitable to trade with them than with individual instruments. Spread behavior is more predictable than the behavior of individual instruments from it, because on similar financial instruments, market factors operate synchronously and there is a synchronous decline or synchronous growth.